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TECHNOLOGY

Is This the Beginning of the End for Patent Trolls? We Hope So.

The Supreme Court tells an alleged patent troll to beat it, suggesting an era of frivolous patent litigation may soon end.

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Chalk one up for the enemies of patent trolls: The Supreme Court on Monday threw out a request for trial from alleged patent troll Soverain Software.

The case, called Soverain Software LLC. v. Newegg Inc., is one of three that are expected to go before the Supreme Court this year. While the Court will likely hear the remaining cases, which deal with finer points of patent law, its dismissal of Soverain speaks to the potential frivolousness of its claims.

Soverain acquired the rights to numerous pieces of code tied to the online shopping cart, developed in the 1990s. In recent years, Soverain has gone on a litigious tear, suing more than two dozen companies including Amazon, Nordstrom, Macy's and Newegg, an online retailer, which all use shopping carts for internet sales.

Soverain had some success suing on the state level, where a Texas jury awarded the Chicago-based company $2.5 million in damages against Newegg. However, Soverain lost on appeal last year in U.S. District Court for the Eastern District of Texas, which ruled the shopping cart patents owned by Soverain were too general.

Patent trolls typically acquire rights to fallow or soon-to-expire patents with no intention of using the patent. Often patent trolls set up shell companies whose only assets are the patents, which means they have no real revenues or assets. Their sole purpose is to harass small businesses, which usually settle rather than pay for extended and costly litigation.

Patent law was originally written to protect the patent holder, making it easier for the patent holder to prevail in court. For the patent infringer to win, rather, the defendant must prove exceptional circumstances--namely that the patentee acted in bad faith and made baseless claims. This is hard to do. While the patent holder can be awarded "treble damages," or three times the damage claimed, the most the infringer can ever collect is attorney fees. 

The remaining cases before the Supreme Court will deal with these finer points.

Congress is examining legislation that would fight patent trolls and their frivolous lawsuits by making them liable for court costs, should they lose their cases.

Small businesses mounted 3,400 legal defenses in 2011 for patent cases, a 32 percent increase over the prior year, according to a research paper from 2012 by Boston University law professors James Bessen and Michael J. Meurer.  That cost to small companies was about $11 billion in 2011, also a 32 percent increase over the prior year.

The total median awards to trolls is now nearly twice as high as those to legitimate patent holders, whose median reward fell about 30 percent to $4 billion, according to a 2013 report by PriceWaterhouseCoopers.

IMAGE: iStock
Last updated: Jan 13, 2014

JEREMY QUITTNER is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
@JeremyQuittner




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